State faces nightmare in 2009, finance experts say

A quarter-million jobs lost. Another year of falling house prices. A multibillion-dollar hole in the state budget.

Those were the grim predictions economic experts and the governor delivered Monday as they analyzed the impact of Wall Street's collapse on New Jersey's economy.

Even as state lawmakers prepare to cut $500 million from the current state budget, Gov. Jon Corzine warned they will face a shortfall of up to $4 billion when they start working in March on the budget for the following year.

"You're going to see dramatic falloff in annual revenues," Corzine said in a New York television appearance. "They're going to require additional cuts. We can make a back-of-the-envelope judgment of say, 3 (billion) or 4 billion dollars just to stay even. And that is a very, very heavy lift."

His comments were echoed by state budget analysts during a special four-hour Senate hearing Monday on the fallout in New Jersey from the worldwide economic crisis.

During the hearing, financial experts predicted housing prices will continue to fall for almost another year, and private-sector job losses, which have totaled 18,700 so far this year, could exceed 263,000 before the economy starts to turn around.

"It's a bad, bad situation," summarized James Hughes, dean of Rutgers University's Edward J. Bloustein School of Planning and Public Policy.

"This isn't a recession," added Kenneth Goldstein, economist for the Conference Board, a nonprofit business organization. "This is something worse."

In New Jersey, state residents are grappling with mortgages they can't afford and crippling levels of credit card debt at the same time the state's highest-paying industries, including finance and pharmaceuticals, are laying off workers or going out of business, economists told lawmakers.

In Trenton, that economic carnage translates into steep drops in revenue from sales and income taxes.

According to the economists who testified before the Senate Budget and Appropriations Committee Monday, the crisis will not begin to loosen its grip until late 2009 or sometime in 2010.

Until then, they predicted, unemployment will rise, home prices will fall and the elimination of tens of thousands of financial-industry jobs will cost New Jersey many of its wealthiest taxpayers.

"Economic wild parties are followed by prolonged economic hangovers," Hughes said. "We are now in the early hangover stage."

The loss of high-paying Wall Street financial jobs is particularly damaging to New Jersey because the state income tax targets wealthier residents. Forty percent of revenue from the state income tax is supplied by the wealthiest 1 percent of taxpayers.

Already Corzine has told lawmakers he expects a $400 million revenue shortfall in the $32.9 billion state budget for the current fiscal year, which began July 1.

But that could be optimistic, David Rosen, chief budget officer for the nonpartisan Office of Legislative Services, told committee members.

"It certainly could get worse than that," he said. "It's hard to see how it gets any better than that."

First-quarter returns for the budget year came in about $62 million behind projections, Rosen said.

Rosen, like Corzine, said lawmakers will face an even stiffer challenge next year, when they try to craft a budget against revenue that still is likely to be in deep decline.

"You've got a $3.4 billion problem for the 2010 budget year without anything getting worse," he said. "It's pretty sobering news for this committee."

In his television interview Monday, Corzine said he is hopeful the state may see some relief in the form of extra financial aid from a new presidential administration next year.

"Without that, you're going to see -- it's not a hatchet. You're going to see a regular ax to state budgets," he said.

Sen. Barbara Buono (D-Middlesex), chairwoman of the committee, said lawmakers are ready to control spending and take whatever other steps are needed to confront the fiscal crisis.

"It's not unexpected, but it's obviously very sobering," she said of the litany of bad news the six experts presented to committee members. "We're going to have to put all our minds together to try to dig out from this, and we will."